Construction Law and Dispute Resolution

Contract overview

The parties under this contract were Cocineros Construction Limited (the contractor) and Witherspoon (the employer). The deal involved the refurbishment of Black Friar public House and a standard form of contract document(JCT SBC/Q 2016) was used.However there was a supplementary amendment clause made by the employer requiring that his approval was a prerequisite requirement for variations exceeding £25,000. It then happened that the contract manager issued variations going overboard which resulted in employer defaulting in payment variations orders for the month of February. Secondly the contractor, experienced frustrations in the normal carrying out of his duties due to some reasons beyond his control.

The case scenario presented here demonstrates the largely adversarial nature of construction projects due to their complexities and the type of works involved (Murdoch & Hughes 2008). This report will therefore check into the substance of these issues in an aim of advising the contractor on the legal position he should take on this whole matter. The specific areas to address are the effect of amending clauses in a Standard forms of contract, the validity of the variation order issued by the CA, the issue of relevant event in order to claim for time extension, the Actions of the contract administrators in regard to both the employer and the contractor as well as analysing the conditions under which the contractor could suspend the work The effect of the amendment included in the Bill of quantities.

The amendment clause appended in the preliminary section of the bill of quantities required that all variations in excess of £25000, extensions of time and all matters of determining loss and expense from contractors to be subject of approval by the employer (Witherspoon) before any payment could be done. However, to effectively determine the possible legal remedies available for the contractor,the supplementary clause needs to be looked in multi-dimension— how it affects all the other interrelated clauses, provisions of the common law as well as the implied terms of the contract.

Firstly in interpreting the effect of amendment on other clauses, Section 1.3 of the JCT stipulates that, the agreements and the conditions are to be read as a whole. It further makes it clear that no other agreement contained elsewhere will modify or override the agreements. This in effect implies that the amendment clause referred to by the employer in the Preliminary section of BOQ falls short in the hierarchy of precedence. By considering the case of Bramall & Ogden v Sheffield Council, it was decided that one clause should be interpreted in consideration of the other related clauses. The amended clause in this case was inconsistent with other clauses which in turn created some disequilibrium. The supplementary clause could therefore not be enforced(Adriaanse, 2007).

By looking at the substance of the supplementary clause inserted thereof the employer is unfairly trying to cushion himself against increased variation cost and extension of time, while transferring the risks thereof to the contractor without a reasonable of rights and responsibilities between the parties(Reilly, 1999). The applicability of the amended clause should be viewed from a larger perspective of its overall effects on the rights and responsibilities of both parties after its amendment. The main obligation placed on the employer is fundamentally that of payment, cooperation with the contractor in their execution of their contract and should not act in a way to hinder the contractor from rightful execution of their tasks (Ayus, 2009).  Where a party amends a contractual term in a way to escape their fundamental obligations or in a way that may alter the legal equilibrium within the contract, the law can intercept to provide a remedy to stop such occurrence.  (Murdoch & Hughes 2008).

Another interesting question which lingers is on whether implied obligations of the employer have a space within the standard forms of contract. The answer is— yes, the implied terms cannot be overlooked depending with their nature and impact on the overall substance of the contract (Ayus 2009).  A good pointer is the Moorcock Case, in which Bowen L.J opined that for an implied obligation to suffice it must: have emerged form a notable intention of the parties, very clear, reasonable, and equitable, is meant to give business efficiency and does not operate to contradict other express terms of the contract (Murdoch & Hughes 2008). In the case where the contract administrator fails to cooperate with the contractor as it should, this does not in any way take away the obligations of the employer to the contractor. (Cheng et al, 2004).Unless the contractor acted to his own detriment, the employer cannot use this amendment clause as an escape window from their own obligations (Chan, 2006).

Testing the validity of the variation order

The variations that have been issued by the Contract Manager should be paid irrespective of going above £25,000. Section 5.1 of the JCT-SBCQ 2016 defines variation as alteration or modification to the design, quantity or quality of works beyond the initially set scope. The variation could be issued by the architect/ contract manager, client’s own agent or engineer and is mainly indicated in the contract drawings, specifications or bill of quantities (Chambers, 2016). It may also be any obligations or restrictions that have been imposed by the employer that may either alter, add or omit what is stipulated in the contract bills (Chan, 2006). Acts such as limitation of working hours or working space, the order of completing the works and access to the site all may lead to variations. Section 3:10 of the JCT expressly empowers the contract administrator/Architect to issue instructions on behalf of the employer (Abeynayake, 2010).Part 3:14 also gives the contract administrator powers to issue guidelines requiring a variation.

According to section 5.2 of the JCT, the valuation of variations shall consist of the value of any adjustment or additions as a result of contract administrator instructions and is made in writing to the contractor. The amount is to be the one accepted by the contractor and the employer or confirmed from an acceptance by the employer of a variation quotation. If not agreed it will be determined from the valuation made by the quantity surveyor. If a particular variation quotation has been accepted, it forms the basis for valuation of a similar subsequent variations. The valuation should also be made on a reasonable basis and should include the direct loss or expense the contractor incurs as a result of interruption from the regular progress of their work portion (Sweet, 2011).

Section 3:10 stipulates that the contractor should comply with all instructions issued by the architect/contract administrator. However before, complying with such instruction the contractor is given the rights to seek for further clarification regarding the substance of the instruction. The contractor should first check whether the contract empowers the architect/contract administrator to issue such an order. Under section 3: 13, the agreement can do so by requesting the contract administrator to notify him of the specific provisions of the agreement which empowers him to do so (Blake et al., 2013). However, if the contractor complies with the particular order with neither party invoking any procedure for dispute resolution stipulated in the contract, the instruction shall be validated by the specified provision (Chambers, 2016).

The amendment in the introductory part of the Bill required the contractor to seek the approval of the employer before carrying out variations more than £25,000. However, in this case, the contract administrator who is an agent of the employer issued valuation orders exceeding £25000. In the previous interim payments, all additional expenses arising from the variations had been paid to the contractor and there was no payless notice issued to the contractor. The acceptance by the employer to pay for the variations in the previous interim payments, is an indication of implied authorization to the contractor to carry out modifications orders (Buckingham et al., 2011; Chambers 2016). Through this, the employer had consistently overlooked the provisions of the amendment clause. Therefore, there is no solid ground whatsoever for the employer to change their mind and decline to pay the extra contractor expenses resulting from the variation orders in February 2018. The payment in this case should follow the provisions of JCT SBC/Q 2016 clause 4, which requires the architect or contract manager to issue an interim certificate, payment to be made in 14 days and the late delays in payment, simple interest to be charged

The question of theextension of time

The contractor (Cocineros) was issuing three circumstances to be considered for extending his time beyond the “fixed” completion date. The factors were —adverse weather, several variations orders issued by the contract manager and acts of frustration by members of the public who had occupied the site in protest of the gentrification of Salford. The central question which arises is whether the contractor was justified for the extension of time bearing in mind that the amended made in the bills only allowed for the extension of time under authorization of the employer.

Section 2.28 of Wales’s law appreciates that it is almost impracticable to have a fixed completion time for a construction project (Chan, 2006). There are some likely and reasonably foreseeable events that may occur and frustrate the set time for a project leading to a delay. This was further affirmed in the case of City inn v Shephard Construction. Unless these events are within the precincts of the contractor to control, the extension of time becomes justified.Section 2.27, stipulates that in an unlikely event that the progress of the works is to be delayed, the contractor can notify the contract administrator concerning the circumstance, its likely effect and the estimated delay beyond the set completion date (De Werra, 2012). The contract administrator should under section 2.28, analyze the situation to see if indeed the contractor should be added more time.

The litmus test for extending time should be on the merit of whether the situation deserves to be a “relevant event.”Section 2.29 widely highlights the case which may qualify as relevant events (Blake et al., 2013). These include variation and architect’s instructions leading to delays such as latency in giving the site to the contractor, suspension of the contractor, impediment originating from the employers side, carrying out of statutory works, exceptionally adverse weather conditions, calamity, civil commotion/threat or terrorism, strike/lockout affecting the contractor operations, force majeure and insolvency of a named specialist(Chambers,2016).If these circumstances occur, it reasonably necessitate  for the addition of time for the contractor.

In this case, the reasons provided by the contractor— adverse weather conditions, several variation orders issued by the contract administrator and frustration by the protests of the locals by occupying the site qualified for the extension of time. These reasons are justified as relevant events which are reasonably foreseeable by the contractor. Therefore, as long as the delay is caused by circumstances beyond the control of the contractor, he is entitled to claim an extension of time (Blake et al., 2013)

On the actions of the Contract administrator

It has previously been indicated that expressly, the employer is not involved on one on one contact with the contractor. This therefore leaves the contract administrator to take up major roles and decisions in regard to the execution of the contract by the contract. As per the JCT-SBCQ-2016, the contract administrator is an agent of the client and therefore any decision that comes from him is construed to be coming from the employer himself. It is understandable that the contract administrator should work for the best interest of the employer however this should not be done to the unfair detriment of the contractor (Renuart et al 1990).

The contract administrator gave variation orders to the contractor in excess of £25,000. However, the issue that arose was in refusal by the employer to include the additional costs and expenses resulting from the variations orders. From this case, the contract administrator knew well that it was advisable to respond to the claims of the contractor. This is because he was also partly to blame for giving several variation orders to the contractor. He should therefore be in a position to advise the employer to add the contractor more time on equitable grounds (Reilly 1999). It was even very unfair that the main ground for contract administrator not to act impartially was mainly motivated by the amount of fees he was obtaining from the employer. Section 4.9 empowers the contract administrator to issue an interim certificate stating the sum the sum they consider being due to the contractor based on the valuations made. It would therefore be unfair to issue a variation order and then end up excluding it in the payment of interim valuations (Cheng et al 2004).

On the question of suspending works

The contractor through his quantity surveyor demanded for the monies not paid to be included in the subsequent interim payment failure to which they would suspend the works. The main question which arises is on whether the failure by employer to fulfil his obligations of making full interim payment could constitute a reasonable ground for the contractor to suspend the works till full payment was made (Powell-Smith 1990).

In this regard, section 4:13 of the JCT-SBCQ 2016 provides a remedy. The employer is given under section 4:11, a window period of fourteen days to honour the sum payable to the contractor after the due date. However, if this does not happen, the contractor can write a notice to the employer and the contract administrator of his intention to suspend the works (Mukumbwa & Muya, 2013). If the employer, fails to honour this within seven days of the notice, the contractor can go on to suspend the works until full payment is made. The contractor is to be paid some reasonable amount in case he incurs losses and expenses as a result of the suspension (Ndekugri & Russell 2005). In this case, the employer did not issue the contractor an interim certificate or a payless notice within 14 days dating from 22nd February to 8th of March.

If the notice issued by the quantity Surveyor is not served within seven days, then the contractor can go ahead and suspend the works and be entitled to all his rights. However the contractor is to exercise great caution if he wants to terminate the works following the case of Jia Min Building Construction v Ann Lee Pte Ltd. In the case, the judge was of opinion that at common law, the contractor had no right to suspend the works unless there was an express agreement with the employer. Otherwise it could amount into repudiation entitling the other party to terminate the contract.

Conclusion

The findings of this report highlight some of legal disequilibrium that may arise as a result of amending fundamental clauses in standard from of contracts. The JCT-SBCQ 2016 is a standard form of contract which negotiated by the various representatives in the construction industry. Therefore any amendment being done to the major clauses should be approached with carefulness, otherwise contractual disputes will arise. The report also finds that implied obligations have equal weights as the express obligations depending on their substance and overall effect on the terms of the contract. The main obligation of the employer in a contract is mainly to pay the contractor upon execution of the works as agreed. The employer cannot therefore try to escape this primary obligation as long as the contractor operated within the laid down terms.

On the issue of variations, the contractor ought to be paid for extra costs and expenses since the variations were authorised by an agent of the employer. The past payments also constituted an implied acceptance by the employer to pay for variation orders therefore overlooking the amended clause. On the issue of extension of time, the contractor should be added more time since the circumstances qualify as relevant events. And lastly on the issue of suspending the works, it has been established that contractor can suspend it after procedurally notifying the employer and the contract manager until his payments are made in full. The amendment clause did not in way waive the employer of his fundamental obligations to the contractor of consideration in exchange of contractor’s performance.

List of Case laws

Bramall & Ogden Ltd Sheffield City Council (1983)

Moorcock Case (1889)14 PD 64

City inn v Shepherd Construction (2001)

Jia Min Building Construction Ltd v Ann Lee Pte Ltd (2004) SGHC 107

References

Abeynayake, M.(2010). Construction Law and Dispute Resolution Practice: Fundamentals of Construction Law for Engineers. VdmVerlag.

Adriaanse, J. (2017). Methods of Dispute Resolution. Construction Contract Law, 358-391.

Ayus, M.(2009). Law of Contract in Malaysia.Volume 1.Kuala Lumpur:Sweet& Maxwell Asia.

Blake, S. H., Browne, J., Sime, S., Great Britain, & Civil Justice Council (Great Britain), Civil Mediation Council (Great Britain).(2013). The Jackson ADR handbook.

Buckingham, P., Townend, S., & Lee, K. (2011).When disputes arise. Construction Dispute Resolution Handbook, 17-26.

Chambers, G. (2016). Avoiding disputes. Keating Construction Dispute Resolution Handbook, 7-16.

Chan, W. J. (2006). Is arbitration the most suitable means of solving disputes in the construction industry?: Dispute resolution model before arbitration.

Cheng, T (2004).Construction Law and Practice in Hong Kong.Hong Kong: Sweet & Maxwell Asia

De Werra, J. (2012). Can Alternative Dispute Resolution Mechanisms Become the Default Method for Solving International Intellectual Property Disputes? SSRN Electronic Journal.doi:10.2139/ssrn.2195968

Mukumbwa, B., &Muya, M. (2013).Ethics in the Construction Industry in Zambia. International Journal of Construction Management13(2), 43-65.

Murdoch, J. & Hughes, W.(2008) Construction Contract:Law and Management.4thEdition:T& F Group.

Ndekugri, I., & Russell, V. (2005). Insolvency and resolution of construction contract disputes by adjudication in the UK construction industry. Construction Management and Economics23(4), 399-408.

Powell-Smith, V. (1990). Construction Regulations in England and Wales. Architect’s Legal Handbook, 212-229. doi:10.1016/b978-0-7506-1219-7.50020-2

Reilly, M. (1999). Civil Engineering Construction Contracts.2ndEdition London.Telford Publishing.

Renuart, E., Keest, K. E., Carter, C. L., & National Consumer Law Center. (2009). The cost of credit: Regulation, preemption, and industry abuses. Boston, MA: National Consumer Law Center.

Sweet, J. (2011). Dispute Resolution: Reasons for Construction Disputes. Modern Methods and Advances in Structural Engineering and Construction (ISEC-6).

JCT (2016).Standard Building Contract with Quantities (SBC/Q): sweet & Maxwell London.

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